Soft Inflation Data Make Interest Rate Hikes Less Likely

Inflation Remains MildSofter than expected inflation and retail sales data from Statistics Canada reduced some of the imperative for the Bank of Canada to raise interest rates and also knocked the Canadian dollar lower on Friday.

Markets had feared more inflationary pressure after March’s 1.1 percent month-on-month rise, which pushed the annual inflation rate to 3.3 percent, above the central bank’s 1 to 3 percent target range.

But April’s annual number came in unchanged, slightly less than expected, and the monthly increase was only 0.3 percent, Statscan said, less than the 0.5 percent forecast, with food prices actually falling.

“It justifiably reverses the knee-jerk reaction to the last (inflation) report and restores a bit of sanity to the Bank of Canada outlook,” Scotia Capital economist Derek Holt said. Click here to view full article.

Here’s yet another hint that increases in the Bank of Canada Rate (and thus in variable mortgage interest rates) will not be coming any time soon, perhaps not until late this year. If the bond market also remains buoyant over the next few months (meaning that fixed mortgage interest rates will also stay low), then we will probably see another strong fall market this year.